Monday, April 27, 2009

Swami’s Mantra….

“Liberalization of foreign investment in banking and insurance will not make much headway, given the mess that financiers have made in the U.S. Small businesses may thwart the entry of foreign investment in retail. Yet, post-recession, economic liberalization should spread to finance and retail.

Two major dangers remain. Every political party is promising grandiose subsidies and spending sprees. Congress promises every poor family 25 kilos of grain per month at three rupees per kilo, while the BJP promises 35 kilos at two rupees per kilo. The fiscal deficit is already 11% of GDP, and will continue this high for at least two years. National debt is over 80% of GDP. This could crowd out private investment and remains a long-term issue.

The second big danger is Mayawati's demand for a job quota in the private sector for dalits and tribals, a form of reverse discrimination. Other parties may agree as a condition for her support. The Constitution guarantees job quotas for these two classes in government jobs. But quotas in the private sector could mean substandard manpower, seriously hitting India's competitiveness, especially in high-tech areas like computer software. Legal experts feel that the Supreme Court will strike down job quotas in the private sector as unconstitutional.

A minor danger is the return of wealth tax and capital gains tax on shares. This could hit the stock market. These measures are favored by the Left Front and Samajwadi Party, which might just dominate a Third Front government. Finance Ministry technocrats may manage to scotch such moves.

The race is wide open, and I estimate the chances of key candidates as follows.